Understanding New Markets Tax Credits LISC NMTC Program

Understanding New Markets Tax Credits

A presentation by:

LISC NMTC Program

Rhode Island Foundationto

Financing Solutions

Rebuild

May 10 2012America’s

Rebuild

May 10, 2012Distressed Communities

For more information, visit: www.newmarkets.org

Agenda

NMTC Overview

LISC NMTC Program

Project Examples Project Examples


NMTC Overview

What is the NMTC Program?

F d l t i iti ti d i i t d b th D t t f T ’ CDFI Federal tax initiative administered by the Department of Treasury’s CDFI Fund

NMTCs awarded annually through a competitive process

Designed to stimulate private investment capital into underserved markets

Eligibility: Generally based on geography (i.e., location of activities limited to

qualified census tracts)• 80% of applicable area median income• 20% poverty20% poverty

Targeted Populations Approach based on income of business owners, employees or customers / clients


NMTC Overview

Eligible Uses of NMTCs

A li t id f i d l t d b i Applies to a wide range of economic development and business activities• Commercial real estate• Community facilitiesy• Industrial/Distribution• Business financing

Ownership & operation of rental housing is specifically excluded BUT• Mixed-use projects are permissible if less than 80% of gross

revenue is from dwelling units (or if the project is separated into residential and nonresidential components)

• The development of housing to rent or sell is permissible although• The development of housing to rent or sell is permissible, although it presents some significant NMTC financing challenges


NMTC Overview

Acronyms

CDE C it D l t E titi tCDE: Community Development Entities must use…

Sub-All: Substantially All of the proceeds from…

QEI: Qualified Equity Investments to make…y

QLICI: Qualified Low-Income Community Investments in…

QALICB: Qualified Active Low-Income Community Businesses located in…

LIC L I C i iLIC: Low-Income Communities


NMTC Overview

Leveraged Financing Structure

NMTC l d fi i fill 10% 25% i j t’ it l NMTC leveraged financing can fill a 10% - 25% gap in a project’s capital budget, with the percentage filled depending upon Amount of financing provided Pricing of NMTC equity Pricing of NMTC equity Whether ongoing NMTC fees & expenses are reserved at closing or paid out

from project operating income The funding sources for the 75 – 80% of leveraged capital need to be

willing to accommodate some of the requirements of a NMTC financing. Compared to 9% LIHTC projects, where the tax credit equity can be as

much as 50% of the total development cost, NMTCs are a relatively shallow subsidyshallow subsidy

Unlike LIHTC and HTCs, NMTCs are generated by enhancing other project sources, rather than being based on project expenditures (“uses”)( )


NMTC Overview

Leveraged Structure Diagram1

1. The diagram does not account for the fees and expenses involved in providing NMTC financing.

NMTC INVESTOR LEVERAGE LENDER

Equity Capital2 NMTCs Loan Proceeds Loan$2,730,000 $3,900,000 $7,270,000 Payments3 providing NMTC financing.

Subsequent slides present examples that include typical fees and expenses.

2. The diagram assumes the

$2,730,000 $3,900,000 $7,270,000 Payments

INVESTMENT FUND

$10,000,000Qualified Equity Investment

$3,900,000.00

4NMTCs,

investor pays $0.70 per $1.00 of NMTC.

3. Loan payments are generally interest only.

$10 000 000 Loan

COMMUNITY DEVELOPMENT ENTITY("CDE")

("QEI") plus Distributions4

4. CDEs generally distribute income used by the investment fund to make payments on the leverage loan.

$10,000,000 Loan

QUALIFIED ACTIVE LOW INCOME BUSINESS("QALICB")

Qualified Low Income Community Investment ("QLICI")

Loan Payments3


loan.("QALICB")

NMTC Overview

Typical NMTC Financing

T E l Two Examples Community Facility

Nonprofit sponsor / limited and uncertain operating incomeOngoing fees & expenses reserved at closingg g p g

Retail / Office Project Financially strong for-profit developer & projectOngoing NMTC fees & expenses paid from project cash flow

$10 million of NMTC Financing Lies within the $5 - $15 million of NMTC financing that a single CDE

is likely to provide to a transaction Represents the “sweet spot” within that range

NMTC equity pricing of $0.70 / per $1.00 of NMTC Represents the midpoint of the current range of $0 67 to $0 72 Represents the midpoint of the current range of $0.67 to $0.72


NMTC Overview

Community Facility

B d t i l NMTC f d d l t t Based on typical NMTC fees and expenses, a developer can expect to fill a 17% capital gap

Under this approach, the developer pays: The rate that its leverage sources, most likely g , y

a nominal rate attached to a loan of grant funds and / or the rate charged by a lender to bridge the sponsor’s receipt of

funds from a capital campaign) and All of the costs associated with the NMTC Net Equity are paid from All of the costs associated with the NMTC Net Equity are paid from

a reserve.

NMTC Leverage Source(s):P j t G t t 8 301 156$Project Grants, etc. 8,301,156$

NMTC Net Equity 1,698,844$

LISC NMTC Financing 10,000,000$


Total Development Costs 10,000,000$

NMTC Overview

Retail / Office Project

B d t i l NMTC f d d l t t Based on typical NMTC fees and expenses, a developer can expect to fill a 22.5% capital gap

Under this approach, the developer pays: The rate that its commercial loan bears and a nominal rate of

interest (to itself) on the loan of its equity contribution The ongoing fees and expenses, which are equivalent to an interest

rate of 4.1% on the NMTC Net Equity. (This rate can range from 3% to 7% )to 7%.)

NMTC Leverage Source(s):Commercial Debt 6,749,897$ L f S E it 1 000 000$Loan of Sponsor Equity 1,000,000$





LISC NMTC Program

LISC NMTC Activity To Date

$778 million received (largest cumulative NMTC award recipient) $646 million deployed

66 transactions $1.6 billion in total development costs 7.3 million square feet of Commercial or Community Space 390 housing units 7 600 P t J b C t d R t i d 7,600+ Permanent Jobs Created or Retained

New Central Hotel(Seattle, WA)

* As of November 1, 2011


LISC NMTC Program

How is LISC using NMTCs?

LISC b i NMTC t iti d b LISC b fi i LISC brings NMTCs to communities served by LISC by financing transactions that advance the community development strategies of LISC’s local programs, National Rural Program, & other national programs and affiliatesp g

LISC’s NMTC activities build on its core competency in real estate financing for commercial space and community facilities

LISC generally uses $5-$15 million in NMTC financing per transaction and can partner with other CDEs on larger transactions

S&S Cycle(Viola & LaCrosse, WI)


LISC NMTC Program

Ideal LISC NMTC Transaction

LISC evaluates the following criteria to choose among NMTC financing LISC evaluates the following criteria to choose among NMTC financing requests: Location Meets:

Basic NMTC Eligibility & Higher Distress Criteria (in LISC’s Allocation Agreement with the CDFI Higher Distress Criteria (in LISC s Allocation Agreement with the CDFI

Fund) Meets LISC’s Social Investment Criteria & Will Generate Significant

Community Impact:• Demonstrates Support From Local CommunityDemonstrates Support From Local Community• Furthers the Local Programs of LISC and its Partners• Creates jobs, provides commercial/retail space, community services or

facilities, and/or other community benefits Project is Ready or Near Ready To Close (3 to 6 months out)

• Clearly Defined Gap that Can Be Closed with a Straightforward Leveraged Structure

• Sources of Leverage and other financing committed• Project defined, construction drawings complete and costs estimated

with a Guaranteed Maximum Contract with general contractorwith a Guaranteed Maximum Contract with general contractor• Site control and real estate issues in order


LISC NMTC Program

Types of Projects and Financing

Community Facilities45% Mixed-Use Residential

Type of Asset

Hope Street Child Care(Providence, RI)

Commercial, Office and / or Retail

45%15%

Industrial8%

Other29% 3%

Type of Sponsor

For-Profit37%

Non-Profit63%


LISC NMTC Program

LISC NMTC Investors (in order of volume)

B k f A iBank of America Bank of the James BB&T Chevron Fi t NBC B kFirst NBC Bank First Niagara BankFifth Third Bank Goldman Sachs HSBC

Plaza Verde(Minneapolis, MN)

HSBC Huntington CDC JP Morgan Chase Bank KeyBankPNC BankPNC Bank Trustmark National Bank Union Bank of CA US Bancorp Wachovia BankWachovia Bank Wells Fargo Bank


LISC NMTC Project Snapshot

Project Basics:Shops at Park Village (Washington, DC)

• Retail center anchored by a supermarket

• Supermarket is the first in area in nearly a decade, with full-service pharmacy, Staples office supply aisle, etc.

• Commercial component of larger mixed-i iti ti t d d l 7 5use initiative to reuse and redevelop 7.5

acres of a vacant former army base (Camp Simms) in Congress HeightsCommunity:

• 44% poverty rate44% poverty rate• Family income 32% of area

median• Unemployment Rate 3.83


times the National Average


Shops at Park Village (Washington, DC)Financing:NMTC Leverage Source(s):

Commercial Debt 12,165,000$ Developer / Sponsor Capital 2,000,000$

NMTC Net Equity 3 450 000$NMTC Net Equity 3,450,000$

LISC NMTC Financing 17,615,000$ Non-NMTC Sources 2,970,000$

Community Impact: NMTC Investor:


• 111,293 s.f. of commercial space• 188 construction jobs• 172 permanent jobs

NMTC Investor:Wachovia


• 172 permanent jobs


Project Basics:Midtown Global Market (Minneapolis, MN)

• Public market component of the redevelopment of the largest building in Minneapolis.

• Undertaken by the Neighborhood Development Center, a LISC-supported business development nonprofit.Th i t ti l th id• The international theme provides entrepreneurial and employment opportunities to residents of the low-income, high-immigrant Lake Street

Community:• 29% poverty rate , g g

community.29% poverty rate

• Family income 44% of area median

• Unemployment Rate 2.93


times the National Average


Midtown Global Market (Minneapolis, MN)Financing:NMTC Leverage Source(s):

Commercial Debt 910,296$ Soft Debt 1,412,096$ Developer / Sponsor Grants 1,734,113$ p pHistoric Tax Credit Equity 1,235,024$



Community Impact:• 86 084 s f of commercial

MMCDC NMTC Loan 8,912,500$

Non-NMTC Sources 157,157$

Total Development Costs 16,514,806$ • 86,084 s.f. of commercial space

• 474 construction jobs• 206 permanent jobs

NMTC Investor:

p C 6,5 ,806$


• 206 permanent jobsUS Bank


Project Basics:Boys & Girls Clubs (Phoenix, AZ)

• Boys & Girls Clubs of Metropolitan Phoenix operate 10 clubhouses and focus on 5 core program areas.

• The LISC NMTC transaction develops three Boys & Girls Clubs:

• Jerry Colangelo Clubhouse• Ed Robson Family Clubhouse• Ed Robson Family Clubhouse• Glandale Branch

• Each is to be used jointly with nearby public elementary schools.

Community:• 33% poverty rate p y33% poverty rate• Family income 55% of area

median• Unemployment 1.83 times

NMTC Investor:JP Morgan Chase


national rate


Boys & Girls Clubs (Phoenix, AZ)

C it I tFinancing:

Community Impact:• 74,865 s.f. of community

space

NMTC Leverage Source(s):Capital Campaign Bridge Loan 7,173,888$


ISC NMTC Fi i 9 13 40$ • 12 construction jobs• 36 permanent jobs





The Plant (Providence, RI)

Community Impact: Project Basics:Community Impact:• 27,264 s.f. of commercial

space• 32 residential units

Project Basics:• $20.4 million - Development Costs• $9.5 million – LISC NMTC Allocation• US Bank – NMTC Investor3 es de a u s

• 107 construction jobs• 75 permanent jobs • Conversion of a former mill complex into

17 residential rental units, 15 live/work artist lofts, 27,264 sq. ft. of commercial

Community:• 36% poverty rate

space, and 114 parking spaces.


• Unemployment 1.9 times ti l t


national rate• Brownfield site


Hope Street (Woonsocket, RI)

Community Impact: Project Basics:Community Impact:• 14,200 s.f. of commercial

space• 95 construction jobs

Project Basics:• $5.7 million - Development Costs• $4.4 million – LISC NMTC Allocation• Bank of America – NMTC Investor95 co s uc o jobs

• 36 permanent jobs• 104 children served • Renovation of historic school for lease to

Connecting for Children and Families, a well-respected, non-profit child care


organization.




national rate


American Locomotive (Providence, RI)

Community Impact: Project Basics:Community Impact:• 199,706 s.f. of

commercial space• 333 construction jobs

Project Basics:• $77 million - Development Costs• $14.6 million – LISC NMTC Allocation• Chevron – NMTC Investor333 co s uc o jobs

• 780 permanent jobs • Adaptive reuse of the American Locomotive Works on the north shore of the Woonasquatucket River near the city’s center


into office and retail space.




national rate• Brownfield site

LISC NMTC Program

LISC NMTC Website (www.newmarkets.org)


LISC NMTC Program

Preliminary Information Form


LISC NMTC Program

LISC NMTC Origination Staff

Jill SteenNMTC Underwriter Phone: (312) 697-6187E-mail: jsteen@newmarkets orgE mail: [email protected]

Robert PoznanskiSenior Vice President, New MarketsPhone: (269) 343-5472 x 3Phone: (269) 343 5472 x 3E-mail: [email protected]


Documents

Understanding New Markets Tax Credits LISC NMTC Program